Hi /biz/, finance noob here currently reading pic related to

OP here, to clarify-if I buy 1 stock at $3 and then two years later sell it for $4 and there are no dividends, the only money I'll get is the $4 I sold it for, right?

That's why you need to read a better book than the buffet story book to understand the mechanics of how stock works.

You buy a stock at a certain price, and yes you get capital gains if you see it at a higher price. Dividends are profits paid out to shareholders that the company doesn't retain. Depending on your investment goals.. Dividends can still be quite significant, ie high dividend income stock say for the less risk adverse or capital preservation and dividend income seekers. Why the focus on stock price is because of how buffet is seen as the God of value investing. To be able to identify undervalued stock at a cheap price and holding then long term till their prices sky rocket because of "strong fundamentals". Of course it's easy for you to say buy low sell high. In reality you can almost never find an undervalued stock now.

>>1019445
>In reality you can almost never find an undervalued stock now
So why do people still invest in the stock market? Is it solely for dividends? Because if undervalued stocks are so rare then why do people even buy stocks? I'd assume that most companies would be valued at around their actual value or above and therefore new buyers would not benefit from buying them as stocks would just stay at the accurate price.

>>1019431
Jesus Christ

1. There are more ways to earn money from stocks. Companies can put in tender offers for shares in the form of cash for the shares you own, so you wouldn't be selling the stock. That is one of many ways you can earn money from stocks that you haven't mentioned, but the two you did are the primary ways (dividends and realized gains).

Dividends aren't worthless, they're worth less. A company's value is the free cash flow it generates. A dividend is rewarding the shareholder for owning the share by paying out a fraction of the profits. Dividends are worth less because they're tax disadvantaged compared to share repurchases.

I really have no clue what you're saying at the bottom of your first question, but the stock price is the only thing that matters at the end of the day. Usually a stock's price is reflected by its ability to generating increasing free cash flows which is presumably why the book says Buffet likes company's with reliable, predicable income stream(s). Buffet would only hold a stock regardless of its price because he believes the fair value of the share isn't represented by the underlying stock price. This is literally value investing.

2. Because no one knows what is high and what is low.

>>1019470
>Jesus Christ
Don't come at me with that condescending bullshit. Fuck you.

Aside from that, thanks for the insight.

>>1019445
>In reality you can almost never find an undervalued stock now
I believe you have smoked too much crack, sir.

Tons of stocks become "undervalued" on a daily basis, only to return to "fair value", whatever the fuck that is.

>>1019431
>Why doesn't everyone just buy low/sell high? Who the hell buys high and sells low? Is it just that people are stupid?

Cool bro, which stocks are low right now and which are high? I need to get in on this.

>>1019458
The market is efficient, not smart. The price a stock is at right now is arguably with current news what the stock is worth at that minute of that day.
Some people buy stocks for longer term beliefs that new news or new developments in the business world will change the value of the stock. You can't price those in immediately.

That is the original idea of buying and holding stocks. You believe the business will grow and so the share value of the company will too.

Buffet believed in solid revenue streams and businesses focused on growth will bring in more value - Advertising agencies, consumer staples, some retail stores etc. These places in the 70s-80s did focus on growth and if they had a good product, they would grow their businesses faster.

But, sometimes people are wrong in their value speculations or some unforseen news hits.
We can look at Chipotle, which lost 20% in a couple of weeks. Very few people could have said they see a large supply chain issue damaging public image in the near future.

Or Whole Foods - not everyone was thinking "The market is shifting to organic and local as a standard, not an exception" which ruins WFM's whole business model of high priced organic.

That's also why some people buy high and sell low, they just can't always predict how companies will move.

>>1019480
>Getting this triggered over business discussions

File: skinnyoptionmodeling092415risk-premium_mstr-tp_2-1.png (289KB, 2000x1125px) Image search: [Google]

289KB, 2000x1125px

You can sell options. One of Buffets greatest tools is cost basis reduction. He does it at a huge corporate partnership level but he does it.

Sell options premium against your stock positions. naked puts for acquisition phase and covered calls when you've entered at size.

You could also do the opposite. More millionaires are made during bear markets than bulls.
Sell high buy low.
The markets general price action has negative skew and negative kurtosis.
https://www.tastytrade.com/tt/shows/the-skinny-on-options-modeling/episodes/excess-option-risk-premium-09-24-2015

Basically stock market creeps up and falls hard and fast. and falls hard and fast more often than it sprints up.

a lot of folks also dollar cost average up and down.

Say you buy 100 SPY shares once its up 20% you sell 20, now youve got 80 shares and cash with +4% buy again after a drop. or sell twenty more at 40% up. with 60 shares and 12% returns. repeat.